Economists at the New York Federal reserve believe that bitcoin, the decentralized, peer-to-peer virtual currency that was created by a pseudonymous software developer around 11 years ago, is “just another example of fiat money”.
In other words, the Fed economists don’t think bitcoin is particularly a new asset class. As expected, this categorization of bitcoin as fiat money has not been received well by the crypto community.
Bitcoin Is Just Like Fiat, Not A New Kind Of Money: New York Fed Economists
Michael Lee, an economist in the Federal Reserve Bank of New York’s Research and Statistics Group, and Antoine Martin who is the senior vice president in the Bank’s Research and Statistics Group, co-authored a blog post on June 18, entitled “Bitcoin Is Not a New Type of Money”. The two break down money into three different categories: fiat, asset-backed, and claim-backed.
They defined fiat money as “intrinsically worthless objects that have value based on the belief that they will be accepted in exchange for valued goods and services”, citing examples like the archaic Rai Stones and Ithaca HOURs. Surprisingly, Lee and Martin go on to declare that bitcoin, – which the Commodities Futures Trading Commission (CFTC) has previously cleared as a commodity – is yet another form of fiat.
So, What Is New About Bitcoin?
According to Lee and Martin, the only thing that is new about bitcoin is its exchange mechanism. They note that electronic payments existed way before 2009, but bitcoin brought about a new system that made electronic transfers possible without third parties. This, according to these economists, is a “radically new” innovation introduced by bitcoin.
They also point out that this exchange mechanism allows the transfer of various types of money like stablecoins, initial coin offerings (ICOs), and even CryptoKitties. As such, “it is more accurate to think of Bitcoin as a new type of exchange mechanism that can support the transfer of monies as well as other things,” they posited.
The authors concluded that it is vital to identify what new feature has been introduced by bitcoin for historical purposes:
“Why should we care? History provides lessons about what makes a good money as well as what makes a good transfer mechanism. These lessons could help cryptocurrencies evolve in a way that makes them more useful. But to know which lessons are relevant, it is important to be clear about what is new about Bitcoin.”
Bitcoin Community Strikes Back At Fed’s Misclassification
Bitcoin enthusiasts were quick to rebut this report by the New York Federal Reserve.
Castle Island Ventures partner Nic Carter argued that the Fed’s “level of ignorance, misclassification, and abuse of language” is simply “insane”. He explained that fiat comes from the Latin word “decree” which means that the value of fiat money is based on the rules issued by a governing body – and this is definitely not the case with the OG cryptocurrency.
reminder:
fiat means ‘by decree’. no one is decreeing or insisting that bitcoin be worth anything. no one is enforcing its value at the point of a gun.
I know we’re in a post structuralist era where the meaning of words doesn’t matter, but cmon. Do better.
— nic carter (@nic__carter) June 19, 2020
Popular bitcoin analyst Ivan on Tech also commented on the statement by New York Fed economists, quipping:
“FED just classified bitcoin as ‘fiat’ […] This incompetence should be frightening to everyone!!”
Dan Held, who is part of the business development team at Kraken exchange, simply noted:
“‘War is peace.
Freedom is slavery.
Ignorance is strength.’
The Fed is using classic 1984-esque doublespeak.”
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